How bitcoin wallet works: A beginner’s guide to storing BTC

A bitcoin wallet is a digital wallet in which you can store your cryptocurrencies like bitcoins. Just like you need a bank account for your actual money, you need a bitcoin wallet to store your digital coins. You can consider it an analogue of your bank account or physical wallet.

A bitcoin wallet has two main functions:

  • Facilitate the bitcoin transaction
  • Storage of the public and private keys

Every bitcoin wallet has a unique address that always starts with 1 or 3. The BTC wallet address contains digits between 26 and 35. As 3KJbgi29cpjq2GudiV8eyHuJJolLopoZc5 is an example of a bitcoin wallet address.

Now the question is how this address is generated? Though it looks like randomly generated strings of numbers, there’s more to it.

Private and public keys

A new bitcoin wallet can be created by generating a public and private key pair with the help of a specific algorithm. In the case of bitcoin, Elliptical Curve Digital Signature Algorithm is used. This algorithm will generate two keys;

  1. A private key: The private key proves the wallet ownership that you are allowed to spend the keys inside the wallet. Don’t share your private key with anyone because it allows you to send money.


  1. An associated public key: A public key is your wallet’s address, just like your bank account number. You can share public keys with anyone without worry. A public key can be used to receive money.

These keys are mathematically linked to each other. In a nutshell, the concept of a bitcoin wallet is the combination of private and public keys.

A wallet has no existence without receiving coins

Once you have generated a Bitcoin wallet, the game doesn’t end here. As a starter, you can generate an unlimited amount of wallets right from your computer, but no one will know about your wallet unless you receive some coins.

The reason is that the cryptocurrency only keeps the record of the transaction between the wallets. There is no authorized list of all the existing wallets. So if you have created a new bitcoin wallet, but there is no transaction, your wallet doesn’t exist in the world of cryptocurrency.

Things to keep in mind after creating BTC wallet

  • Another thing to keep in mind is that you might transfer coins to a wallet address that doesn’t exist. There is no list of valid addresses available in blockchain that you can check if the address is valid or not.
  • In case you have transferred money to an invalid address, your coins are lost forever. Or unless someone generates a private key for that particular address, this is not possible until now. This process is referred to as coin burning

Types of BTC Wallets 

There are mainly two types of BTC Wallets.

  1. Hot Wallets: These are the wallets that are always connected to the internet. Since these are online, there is more chance of digital attack. But people choose hot wallets for convenience. Hot wallets include;
  • Web wallets
  • Desktop wallets
  • Multi-signature wallets
  • Mobile wallets
  1. Cold Wallets: These wallets are created in an offline environment, unlike hot wallets. The offline environment is called cold storage, which doesn’t need to be connected to the internet. Since it is online, the risk of digital attacks is reduced. Cold wallets are more secure but inconvenient to use. Cold wallets include;
  • Paper wallets
  • Hardware wallets

If your primary goal is long term storage of money, cold wallets are suitable for you. And if you are planning to do frequent transactions, hot wallets will serve you right.


A bitcoin wallet is essential for storing public and private keys, without which you cannot send or receive bitcoins. Different types of wallets have different security levels, so choose the one that suits your preference. A thoughtful choice of the type of wallet is your first step towards bitcoin asset building.

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